Supreme court makes an important ruling in a business case

The U.S. Supreme Court issued an important ruling last month relating to investor lawsuits. The Court held that investors can sue a corporation for purposefully withholding damaging information about a product and that employees can sue the company for retaliation without having to make a written complaint. The Justices ruled unanimously to allow a lawsuit by a group of investors against Matrixx Initiatives Inc., the makers of the now-discontinued Zicam nasal cold remedies, to go forward. The Court also ruled in a separate case on a 6-2 vote to let an employee’s retaliation lawsuit proceed against Saint-Gobain Performance Plastics Corp.

In the Matrixx case, the High Court unanimously affirmed a decision by the 9th U.S. Circuit Court of Appeals to let a securities fraud lawsuit against the company go forward. A group of investors sued the Scottsdale, Ariz.-based company, complaining that the company made misleading statements about Zicam. The company said sales were going to rise and that reports of its product causing loss of smell were “completely unfounded and misleading.” A federal judge granted Matrixx’s motion to dismiss the lawsuit, accusing the company of misleading investors because there was no statistical proof at that time that the loss of smell was directly linked to Zicam.

But Justice Sonia Sotomayor, writing for the court, said companies don’t have to have concrete data before sharing what they have with investors. “Given that medical professionals and regulators act on the basis of evidence of causation that is not statistically significant, it stands to reason that in certain cases reasonable investors would as well,” she wrote. Justice Sotomayor also said all of the allegations against Matrixx “give rise to a ‘cogent and compelling’ inference that Matrixx elected not to disclose the reports of adverse events not because it believed they were meaningless but because it understood their likely effect on the market.” The case now goes back to the lower court. Matrixx withdrew Zicam Cold Remedy Swabs and Zicam Cold Remedy Gel from the market in June 2009 after the Food and Drug Administration told consumers they should stop using the products because they can permanently damage the sense of smell.

In the Saint-Gobain case, the Justices ruled that there doesn’t have to be a written complaint to a government agency for a worker to claim anti-retaliation protection under the Fair Labor Standards Act. The employee was fired from a Saint-Gobain Performance Plastics facility in Portage, Wis. He had complained to Saint-Gobain that the time clocks were placed in a location where employees would lose overtime. The company moved the clocks the same day he was fired, and settled with other employees for nearly $1.5 million. The employee filed suit, saying he was fired because he spoke up. He claimed retaliation protection under the Fair Labor Standards Act, but the company said, and the U.S. Court of Appeals for the Seventh Circuit agreed, that to get protection workers who have “filed any complaint” about workplace conditions must have written it down. Justice Stephen Breyer, writing for the majority, said that Congress didn’t mean to limit complaints in such a way.